Consumer Heterogeneity and First-Mover Advantages

To pioneer or not ? This is one of the most fundamental marketing decisions. The theoretical literature in marketing and economics shows that pioneers have comparative advantages by preempting scarce resources and market positions. Conversely, followers have informational advantages about the market by adopting a "wait-and-see" strategy. This paper, however, presents consumer heterogeneity as a main determinant of first-mover advantage and demonstrates that followers may attain higher market share and profit even without informational advantages. We assume that consumers differ in their tastes not only along attributes that firms employ strategically, but also along attributes that the firms cannot manage due to the unobservability. We examine the effect of consumer heterogeneity along the unobservable attributes on first-mover advantages in a duopoly model of sequential entry. This paper shows that the follower obtains greater demand and profit when consumers are sufficiently heterogeneous along the unobservable attributes. Under low levels of heterogeneity along the unobservable attributes, however, our findings are consistent with past research which argues for first-mover advantage